Tax and Other Incentives

Montana Incentives for Renewable Energy

This is a list of all the incentives, tax and otherwise, that Montana law offers for renewable energy development. Some are just for individuals; some are just for businesses; many are for both. These incentives generally apply to most kinds of renewable energy. Incentives for ethanol and alternative fuels are in the final section below.

A new report on State and Federal Energy Incentives for energy has just been released by the Energy and Pollution Prevention Bureau. This report analyzes the incentives available for oil and gas production, coal, electrical generation, renewable energy production, and energy conservation.

Certain amounts ($20,000 for a single-family residential dwelling or $100,000 for all other structures) of the assessed value of non-fossil forms of energy generation equipment or low-emission wood or biomass combustors are exempt from property taxes for 10 years following installation.

Contact:

Department of Revenue, 406-444-6900; use state tax form AB-14 for individuals or for businesses.

Generating plants producing 1 megawatt or more by means of an alternative renewable energy source are eligible for the new or expanded industry property tax reduction on the local mill levy during the first nine years of operation, subject to approval by the local government. If so approved, the facility is taxed at 50 percent of its taxable value in the first five years after the construction permit is issued. Each year thereafter, the percentage is increased by equal percentages until the full taxable value is attained in the tenth year.

The tax reduction applies only to taxes levied for the local high schools and elementary schools and for the local government offering the reduction.

Contact:

No special form needed; contact Department of Revenue's local county office for more information.

Certain renewable energy facilities and equipment are eligible for a property tax abatement of 50 percent for up to 19 years. This abatement applies to all mills levied against the qualifying facility or equipment. Renewable energy research and development equipment, up to the first $1 million of value, also is eligible to receive the abatement.

Businesses engaged in the production of energy by means of an alternative renewable energy source are eligible for the new or expanded industry tax credit against corporate income tax. To be considered an expanding industry, total full-time jobs must increase by 30 percent or more. The credit is equal to 1 percent of new wages paid in state during the first three years of operation. No carryback or carryover is allowed for this credit.

Contact:

Department of Revenue, 406-444-1758; see ARM 42.4.1601-1612 for information that must be provided.

Topic:

Personal income tax credits for installing a residential geothermal system

A resident individual taxpayer who installs a geothermal or geothermal heat-pump system in the taxpayer's principal dwelling, or the builder of a house, can claim a tax credit based on the installation costs of the system, not to exceed $1,500. Credit not used in the year in which the system is installed may be carried forward for the 7 succeeding tax years. The credit can only be claimed once on any given house.

Contact:

Department of Revenue, 406-444-6900; use state tax form ENRG-A for individuals or businesses.

Resident individuals may claim an income tax credit of up to $500 for installing a recognized nonfossil form of energy generation or heating, including low-emission wood or biomass combustion devices, in their principal residence. If necessary, the credit may be carried over for up to four years after the first year it is claimed.

Commercial and net metering alternative energy investments of $5,000 or more are eligible for up to 35 percent tax credit against individual or corporate tax on income generated by the investment. The credit may only be taken against net income produced by the eligible equipment or by certain associated business activities. Associated facilities, manufacturing plants producing alternative energy equipment and new or expanded businesses using the energy generated by the alternative energy investment may use the tax credit.

The tax credit must be taken the year the equipment is placed in service; however, any portion of the tax credit that exceeds the amount of tax to be paid may be carried over and applied against state tax liability for the following 7 years. A project of 5 MWs or larger on a reservation may carry the credit over for 15 years, if it has an employment agreement with the tribal government.

Taxpayers may not take this credit in conjunction with any other state energy or state investment tax benefits, or with the property tax exemption for nonfossil energy property 15-6-224.

This credit is available to taxpayers purchasing an existing facility as well as to those building a new facility.

Contact:

Department of Revenue, 406-444-6900; use state tax form AEPC for individuals or for businesses.

Electricity from wind generation on state lands is exempt from the wholesale energy transaction tax of $0.00015/kWh transmitted. Electricity from any source, including renewables, that is generated on a reservation is exempt if it is for delivery out of state. Electricity generated by a US government agency for delivery outside the state and electricity from any source delivered to members of a cooperative or municipal is exempt from the WET tax.

The renewable resource grant and loan program is administered by the Department of Natural Resources and Conservation. Historically the program primarily has funded water projects, but it does offer grants to renewable energy projects of state, local, or tribal government entities. On a biennial basis, DNRC evaluates and recommends projects to the Legislature for funding.

The board of research and commercialization technology gives grants for renewable resource research and development projects, among other types, to be conducted at research and commercialization centers located in Montana.

Limited obligation local government bonds ("special revenue bonds") may be issued for qualified electric energy generation facilities, including those powered by renewables. These bonds generally are secured by the project itself. The taxing power or general credit of the government may not be used to secure the bonds. Local governments may not operate any project financed by the sale of revenue bonds as a business except to lease it to some other party.

These bonds are exempt from state taxes and may qualify for federal tax incentives. The tax-exemption feature allows funds to be borrowed at a significantly lower rate (1-2 percent) than possible with taxable bonds. There are various restrictions on how such bonds may be used. Because of the legal complexity of a bond issue, retaining bond counsel is important.

The total amount of special revenue bonds that can be issued by state and local governments combined is capped, which theoretically could limit a government’s ability to issue new bonds for a generation facility.

Businesses producing energy using an alternative renewable energy source are eligible for microbusiness loans, which are capped at $100,000. A microbusiness is a Montana-based company with fewer than ten full-time employees and a gross annual revenue of less than $1 million. Application for a loan is made to a certified microbusiness development corporation; there currently are five located around the state.

Contact:

MicroBusiness Finance Program, Department of Commerce, 406-841-2751 or visit their website to find locations of the nearest microbusiness development corporation.

The alternative energy revolving loan program offers low-interest loans for up to $40,000 with repayment up to ten years. The loans are for the purpose of installing alternative energy systems that generate energy for the building occupant's own use or for net metering. Energy conservation measures may also be financed along with the alternative energy project.

The number of loans that will be made is subject to funding availability. The projects must be located in Montana.

Loans subsidized by tax-exempt bonds issued by the Montana Agricultural Loan Authority may be used for the production of energy using an alternative renewable energy source. The program is run through existing private agricultural lenders. The intent is to provide lower interest (1-2 percent below market) loans up to $477,000 to eligible beginning ag operators. To meet IRS regulations, the energy generated must be used within the agricultural operation.

The Public Service Commission sets special rates at which NorthWestern Energy or Montana-Dakota Utilities must buy power from qualifying facilities that either 1) use renewable resources or waste materials or 2) cogenerate. Flathead Electric Coop is the only rural electric cooperative that must offer QF contracts. It is regulated directly by FERC.

The nameplate capacity of eligible facilities can be no more than 80 MW according to federal legislation. The rates set by the PSC must be in compliance with the federal Public Utility Regulatory Policies Act (PURPA). The PSC requires QFs larger than 10 MW to go through an RFP process to obtain a long-term contract. Between solicitations, QFs larger than 10 MW can sell to the utility at a tariffed short-term rate.

NWE is the only Montana utility with QFs; its tariffs are available on its website.

The 2003 Legislature passed HB417, which repeals all Montana mini-PURPA, contingent on repeal of federal PURPA. It would not affect any legal action or agreement made prior to the repeal.

The Public Service Commission has the authority to regulate abusive practices by suppliers and others. The PSC requires suppliers to substantiate any claims that their natural gas is from renewable resources. (See ARM 38.5.6010 Claims Made In Marketing Natural Gas.)

NorthWestern and MDU must procure supplies for a minimum of 5 percent of their retail sales of electrical energy in Montana from eligible renewable resources through 2009, 10 percent between 2010 and 2014, and 15 percent starting January 1, 2015. Starting in 2012, a portion of their RPS requirement must be met with electricity from community renewable energy projects. Renewable energy credits created by an eligible renewable resource purchased separately from the associated electricity may be used to meet the RPS.

A cooperative utility with 5,000 or more customers is responsible for implementing and enforcing its own renewable energy standard that recognizes the intent of the legislature to encourage new renewable energy production and rural economic development.

The RPS also applies to competitive electricity suppliers, defined as any supplier other than a public utility or a cooperative selling electricity at retail rates to customers whose individual load has an average monthly demand of less than 5,000 kilowatts.

NorthWestern Energy must offer customers an opportunity to purchase a separately marketed (and possibly differently priced) product composed of power from biomass, wind, solar or geothermal resources. The PSC ensures that these resources have been certified as meeting industry-accepted standards.

All distribution utilities and cooperatives must collect a Universal System Benefits Charge (USBC), which is used for low-income assistance and weatherization, energy efficiency, renewable energy, and R&D programs. Utilities and cooperatives may manage their own USB program, or may pay into state funds that implement the USB program. The charge is set at a level rate that would have generated 2.4 percent of each utility’s 1995 retail sales revenue at 1995 sales volumes. However, the amount that can be charged to large customers is capped. Therefore, the total annual collection is less than 2.4 percent of the total utility and co-op revenue. Since actual loads vary year to year, total USBC collections also vary. The largest program is run by NorthWestern Energy.

Net metering is an arrangement that allows surplus energy generated by the customer’s renewable energy system to go back onto the utility electric system. The customer’s meter measures the electricity the customer uses from the utility system less the electricity the customer’s system puts back. The customer receives "credit" at retail rates for the electricity put back on the system, up to the amount of power the customer actually consumes at the location.

A city or town council may create a special improvement district for the purchase, installation, maintenance, and management of alternative energy production facilities. Under certain conditions, abutting property in the county can be included in a district. Property owners in the district are assessed a fee to pay for the investment and operation of the facilities.

Property owners may create an easement to ensure access to solar radiation. It must be created in writing and is subject to the same conveyancing and instrument recording requirements as other easements on real property.

A wind easement is an interest in real property to ensure access to wind. A property owner may grant a wind easement in the same manner and with the same effect as the conveyance of an interest in real property. The wind easement runs with the real property on and over which the wind resource flows and may not be severed from the property. A wind easement doesn’t affect rights belonging to or the dominance of the mineral estate. It is not an easement or grant of right of way for transmission lines.

All branches of state government and state institutions of higher education owning or operating a motor vehicle capable of burning ethanol-blended fuel shall take all reasonable steps to ensure that those vehicles use ethanol-blended fuel if that fuel is commercially available and competitively priced.

All manufacturing machinery, fixtures, equipment, and tools used for the production of ethanol from grain during the course of the construction of an ethanol manufacturing facility and for 10 years after initial production of ethanol from the facility are exempt from property taxes. Machinery and equipment used in a canola seed oil processing facility are exempt from property taxes.

Contact:

State property tax exemption forms are available at the Department of Revenue’s county office.

An individual or business is allowed a state income tax credit for equipment and labor costs incurred to convert a motor vehicle licensed in Montana to operate on alternative fuel. The maximum credit that may be claimed in a year is up to 50 percent of the equipment and labor costs incurred but no more than $500 for conversion of a vehicle with a gross weight of 10,000 pounds or less or $1,000 for heavier vehicles. "Alternative fuel" means natural gas, liquefied petroleum gas, liquefied natural gas, hydrogen, electricity or any other fuel if at least 85 percent of the fuel is methanol, ethanol or other alcohol, ether, or any combination of them. The credit allowed under this section may not exceed the taxpayer's income tax liability and there is no carryback or carryforward of the credit.

Contact:

Department of Revenue, 406-444-6900; use state tax form AFCR for individuals or for businesses.

There is a credit against Montana income tax for the costs of investments in depreciable property in Montana used to crush oilseed crops primarily for purposes of biodiesel or biolubricant production. Fifteen percent of the cost of the property, up to a total of $500,000, may be claimed as a credit, for projects that begin operating before January 1, 2015. The credit may be carried forward seven years and is subject to recapture if the facility ceases operation within five years of claiming the credit.

Contact:

Department of Revenue, 406-444-6900; use state tax form OSC for individuals or for businesses.

There is a credit against Montana income tax for costs of investments in depreciable property for constructing or equipping a facility in Montana to produce biodiesel or biolubricants. Fifteen percent of the cost of the depreciable property may be claimed as a credit, for projects that begin operating before January 1, 2015. The credit may be carried forward seven years and is subject to recapture if the facility ceases operation within five years of claiming the credit.

Contact:

Department of Revenue, 406-444-6900; use state tax form OSC for individuals or for businesses.

There is a credit against Montana income tax for costs of investments in depreciable property for the storage and blending of biodiesel from Montana-produced ingredients with petroleum diesel. Fifteen percent of the cost of the property, up to a total of $52,500 for distributors and $7,500 for the owner or operator of a retail outlet, may be claimed as a credit. The credit may be claimed any year that blending biodiesel occurs or in the two tax years prior to when blending occurs. The credit may be carried forward seven years and is subject to recapture if the facility ceases operation within five years of claiming the credit.

Contact:

Department of Revenue, 406-444-6900; use state tax form BBSC for individuals and businesses.

Any alcohol distributor who, for the purpose of denaturing alcohol distilled in Montana or for any commercial use other than operating vehicles upon any of Montana's public highways or streets, purchases gasoline on which the Montana gasoline tax has been paid is entitled to a refund of the tax paid.

Up to 2,500 gallons annually of biodiesel fuel from waste vegetable oil feedstock used for the operation of motor vehicles on public roads and highways is exempt from the special fuels tax, if the producer owns or controls those vehicles.

A distributor may claim a refund equal to 2 cents a gallon on the fuel tax on biodiesel made entirely from ingredients produced in Montana. The owner or operator of a retail motor fuel outlet may claim a refund equal to 1 cent a gallon.

There is a 20 cents a gallon tax incentive for alcohol produced in Montana from 100 percent Montana agricultural products, including Montana wood or wood products. The amount of the incentive is reduced proportionately if agricultural or wood products not from Montana are used in the production of the alcohol. Total payments of the incentive can’t exceed $6 million in any consecutive 12-month period. An individual alcohol distributor can’t receive incentive payments exceeding $2 million in any consecutive 12-month period. These benefits are available for the first six years of production. To receive the incentive payments, an alcohol distributor must provide a written plan to the Department of Transportation at least 24 months before the anticipated collection of the incentives.

Once the state of Montana has produced 40 million gallons of denatured ethanol and has maintained that level of production on an annualized basis for at least three months, all gasoline sold to consumers for use in vehicles to be operated on public roads must be blended with 10 precent, by volume, of agriculturally derived, denatured ethanol and may not contain more than trace amounts of the additive methyl tertiary butyl ether. If the production of denatured ethanol drops below 20 million gallons on an annualized basis, this provision does not apply.